used, these terms should be invalidated as arbitrary and capricious on their face.
Second, plaintiff argues that the forfeiture clause is arbitrary and capricious in the way in which it differentiates among participants, by, for example, excepting employees who terminated employment three years before plaintiff dropped out of the plan, but including employees who quit one year before plaintiff terminated its participation, even though more contributions were paid on behalf of the latter than for the former. Irrespective of the reasonableness of the overall specification of forfeiture of credited service, once the decision is made to except some categories of employees from those provisions, plaintiff suggests, the excepted categories must be designated rationally, so as to avoid discriminating among employees arbitrarily.
Third, plaintiff argues that the forfeiture provisions cannot be applied to its employees because of lack of adequate notice. Thus, it is said, the plan summary in the pension plan booklet distributed to employees states that those who have satisfied the vesting requirements of the plan are entitled to "freeze" their accumulated pension credits, and there is no reference to the possibility that the forfeiture provisions may override pension rights that have vested; and, more directly, that defendants failed to notify plaintiff's employees at the time of plaintiff's termination that they had the option to preserve their credited service by terminating their employment with Central Tool within thirty days.
Defendants argue in response that the forfeiture provisions constitute a rational approach to the problem of unfunded liability resulting from an employer's withdrawal from the pension fund, especially since the plan could have denied all credit for past service. In this view, cancellation of past service credits for employees of terminating employers bears a rational nexus to the goal of controlling the pension fund's exposure to unfunded liability and, hence, is not arbitrary. The exceptions from the forfeiture provision represent, in defendants' view, attempts to exempt those categories of employees for whom cancellation of credited service would provide no meaningful incentive for continued plan participation (such as employees of employers who terminated participation because they went out of business, an event obviously beyond the control of the employees). The fact that the exceptions do not allow for a perfect differentiation between those employees who are partially responsible for an employer's termination and those who are not does not demonstrate, defendants suggest, that they are irrational. Finally, defendants contend that plaintiff's complaints are unrelated to the allowance of exceptions in the plan, inasmuch as the repeal of the exceptions would improve the position of none of Central Tool's employees.
The central issue presented by these conflicting arguments is whether implementation of the forfeiture provisions to cancel past service credits in calculating vesting status and benefit entitlement for previously vested employees is arbitrary or capricious.
Any analysis must begin with the presumption that "vesting" means "vesting." Cf. Nachman v. Pension Benefit Guaranty Corp., 446 U.S. 359, 376-81, 100 S. Ct. 1723, 1733-1736, 64 L. Ed. 2d 354 (1980). The presumption that vested benefits are not generally understood as remaining subject to conditional divestment is buttressed by an examination of the plan booklets distributed to plaintiff's employees. These booklets described vesting as a provision which would enable employees to "freeze" their entitlements to a pension, and they indicated only age and years of credited service as determinants of vesting, without ever suggesting the possibility of divestment by virtue of the forfeiture provisions. It is not necessary to reach the question whether the presumption that vesting indicates a "frozen" status retains its force if the plan participants are clearly informed that divestment provisions remain operable; the presumption is certainly warranted when, as here, the pension fund reinforces that impression.
See Winpisinger v. Aurora Corp., 456 F. Supp. 559, 569 n. 9 (N.D.Ohio 1978).
Once it has been determined that both the ordinary understanding of the terminology involved and examination of the plan summary suggest that vesting is unconditional, the question remains whether some compelling reason running counter to this ordinary presumption mandates the conclusion that the vesting provisions are appropriately overridden by the forfeiture provisions. Unless such an overriding purpose can be identified, the forfeiture of all past service credit without regard to vesting status must, of necessity, be regarded as arbitrary and capricious. Moreover, in light of the notice deficiency, the burden is on the defendants to demonstrate that such a purpose renders the forfeiture of past credits of vested employees necessary to the overall operation of the plan. Cf. Roark v. Lewis, 130 U.S. App. D.C. 360, 401 F.2d 425, 428 (D.C.Cir.1968).
It is the purpose of the forfeiture provisions to protect the fund from the dumping of unfunded liability as a result of an employer's termination of participation after past service credits have been granted to its employees. Although the goal itself is unexceptionable (see Baltimore Rebuilders, Inc. v. National Labor Relations Board, 611 F.2d 1372, 1379 (4th Cir. 1979)), it is not so clear that the provisions here at issue are reasonably necessary to effectuate that goal. Defendants rely primarily upon the language of Baltimore Rebuilders, supra, 611 F.2d at 1380, to the effect that forfeiture "is a reasonable pension plan provision which operates fairly to induce the voluntary continuation of pension coverage," and upon other language in ERISA
indicating that Congress contemplated the inclusion of forfeiture clauses in pension plan agreements. But these references do not support defendants' contention that the forfeiture provisions constitute a reasonable means to protect the pension fund. A forfeiture provision may be reasonable if it is actuarially necessary; yet, defendants have not offered any actuarial evidence to support their claim that the provision is tailored to the need to protect the fund. ERISA merely tolerates the use of forfeiture provisions
and as the court stated in Winpisinger, 456 F. Supp. at 571, when
neither the Fund, nor its actuaries and consultants, have studied the incidence of (the asserted justification), ... the distinction from which the Trustees derive the "rational basis' for their action ... is based at best on assumptions and surmises by the Trustees.